Rural Sourcing: Customers Finding Advantages of Buying Local

The concept of “rural sourcing” is gaining increasing credibility as a viable component of a comprehensive sourcing strategy. Under a rural model, US-based service providers establish delivery centers …

The concept of “rural sourcing” is gaining increasing credibility as a viable component of a comprehensive sourcing strategy. Under a rural model, US-based service providers establish delivery centers outside of major metropolitan areas, enabling access to technical skills through proximity to large state universities, as well as to a large entry-level workforce in economically distressed rural areas.

Benefits of rural sourcing can include fewer time-zone and cultural constraints, and, in many cases, lower transition costs. And, for many organizations, especially those in the public sector, or where data privacy and security restrictions are an issue, maintaining a domestic presence can be paramount.

The labor arbitrage component of the rural model is significant. TPI has found that rural sourcing suppliers can leverage wage rates 20% to 40% lower than those found in major metropolitan areas.

Rural-based service centers can also leverage existing infrastructure to achieve further economies through a service delivery “factory” framework of common best practice processes (ITIL and CMM), tools, training, operating models, and knowledge management disciplines. In addition, rural sourcing centers are well-positioned to provide custom application development and testing services.

Software development and software testing are commonly supported in a rural sourcing model.  Activities that are asset- or investment-intensive, such as remote infrastructure support, may not be good candidates for rural outsourcing.

An effective alliance strategy is a key element of rural sourcing success.  Public/private partnership with state entities and universities with engineering and business graduates allow service providers to staff delivery centers directly from local resources.  Campus recruitment programs aimed at engineering and computer science graduates, job fairs, as well as training programs targeted to the local non-university community provide a continuous pipeline of staff with a mix of target skills.

Rural sourcing can also be used as a way to generate economic growth in areas of high unemployment. Compass recently analyzed an outsourced Help Desk operation based in a prairie state that served a number of national clients.  The service provider established a career path, whereby entry-level agents from the local community worked on smaller accounts doing first-level contacts, and then progressed to more prestigious accounts and more value-added work. The provider’s major client – a major global retailer – was considered a true partner, and provided long-term opportunities to a number of agents.

Know the Risks

With political instability a growing concern internationally, rural sourcing might be less risky.  That said, effective disaster recovery plans and processes are still essential.  Compass assessed a rural operation that was largely caught off-guard by the recent flooding in the Midwest.  While the provider was able to route work to other locations and to home-based workers, the floods exposed the vendor’s lack of preparedness.

The location and national origin of Help Desk agents can have a significant impact on operational performance and on user perceptions of quality. Satisfaction surveys conducted by Compass for a major global retailer found that Help Desk users actively avoided dealing with agents in a Mexican operation in order to speak to an agent based in the Midwest.  Compass has strong evidence showing that high levels of “end-user effort,” where users avoid the Help Desk and try to fix their own problems, is a significant drain on productivity.

Compass also assessed a rural operation where the vendor established a facility in New Mexico to serve Spanish-speaking users in the US. In another instance, a rural-based service provider cross-trained Spanish-speaking agents between US and Mexican-based facilities, resulting in improved service quality.

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While the most common complaint against the Mexican agents was difficulty in communicating because of accents and “cultural” differences, users also expressed a view that the desk in Mexico “didn’t understand the urgency of our needs and issues.”

Will It Work for You?

Gauging the viability of a rural sourcing approach requires an apples-to-apples comparison against alternatives. In addition to labor arbitrage, factors such as different management and training requirements, impact of different time zones, and savings associated with less travel, must be considered. And whatever sourcing model is adopted, a focus on continuous improvement and optimization of operations through adoption of leading practices and process management models is essential.

Gauging the viability of a rural sourcing approach requires an apples-to-apples comparison against alternatives.

To ensure a meaningful comparison, Service Level Agreements and productivity measures included in the Total Cost of Outsourcing (TCO) assessment should be the same for a rural outsourcer and a traditional or offshore outsourcer. Blended rates should account for the percentage of work completed offsite, which is likely to be higher in a rural model than in a traditional offshore setting.

A small but rapidly growing market, rural sourcing complements a multi-supplier strategy and provides risk-mitigating diversification that may address business requirements and/or be a good prelude for off-shoring. To date, rural sourcing has been financially viable and politically savvy with respect to job creation and retention.  As with any sourcing strategy, however, the rural model requires a structured approach to contract management and governance.

Kathy Welch is a TPI Senior Advisor and Jennifer Roxas is a Compass Consultant. TPI and Compass are owned by the same parent company, ISG, Inc.

 


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